I have been reading more than usual recently trying to figure out the main reasons for our current financial/economic crisis. The person who makes most sense in this is Kevin Phillips, a social analyst of unusual perspective and ability. He has written several books over the last 20 years on this topic, including Arrogant Capitalism, Wealth and Democracy, American Theocracy, and most recently, Bad Money. He started out as a conservative working for Richard Nixon and has evolved over the decades into somewhat of a conservative populist, though that doesn't really do him justice.
Phillips asserts that due to many factors, America has come close to being a plutocracy (rule of, by, and for the rich). He also believes that we are basically a great power (world empire) in decline, following the same path as did Spain, the Dutch, and the British in previous centuries.
It would be very difficult to adequately summarize what I've learned from him. His books are a tough read, filled with statistics and facts about finance and economics. But I'm going to try and share some of the basic points he is making, in this and succeeding posts, that I think might help you understand how the crisis came to be.
First of all, the American economy reached a high point of true strength and wealth in the post-WW II period, when the rest of world's wealth was exhausted or destroyed by the war while America was the world's only true economic and military superpower. (The industrial age had begun in the 1870s). This period lasted through the mid-sixties, at which point we had the largest middle class that has ever existed in any industrial society, largely due to the fact that there was a positive working arrangement between industry, labor, and government.
Beginning with the Vietnam War, things began to go downhill for the American economy. Various circumstances led to an economy in which the following things happened over the next 40+ years: our manufacturing declined from around 50% of our economy down to about 10% today; the financial sector went from below 10% to above 30%, we went from being a creditor nation to the world's largest debtor nation, and the national economic wealth and income was the most inequitably distributed since the Roaring Twenties.
This all began with the Vietnam War, and its guns and butter philosophy, was continued through the seventies, with its oil embargo and stagflation. By 1980, with the economy reeling and the nation demoralized from the loss of the Vietnam War, it was almost inevitable that someone like Reagan would come along, with his optimistic philosophy. What he also brought was a free-market, laissez-faire economic philosophy which has led to the situation as described above.
Reaganomics/Thatcherism, which has been the reigning economic philosophy until 2008 (even throught the Clinton years), was essentially an overturning of the New Deal/Fair Deal/Good Society initiatives, returning America to the economics of the Gilded Age of the 1890s and the Roaring Twenties, just prior to the Great Depression. It was characterized by the following traits: (1) removing government from economic intervention, especially the deregulation of industry and finance; (2) hostility to labor unions; (3) the rise of mergers and corporate consolidation, with their negative effects on employees and communities, with outsourcing becoming more prevalent more recently; (4) tax reduction as the economic elixir that could solve anything; (5) the inexorable increase of indebtedness at every level of society, both public and especially private; (6) the concentration of wealth in the richest 1-2% of the population; (7) the decline of upper-middle, middle-class and lower class incomes; (8) the disguising of inflation and unemployment behind faked government numbers; (9) boom and bust cycles, characteristiced by stock-market and asset-price instability and crashes; (10) the rise of the finance sector as the leading source of wealth; and finally (11) the near-worship of the 'market' as the source of all economic knowledge and good.
Obviously, if you are in the, say, top 1 or 2% of the population, you have benefited tremendously from the last 40 years. You are set up, with anywhere from $10 million to $80 billion, in such a way that you and your descendents will probably never run out of money, and can set up shop wherever you desire in the world, if America falls apart.
If you are in the bottom 95%, things are not looking so good. Hence, the term 'plutocracy.'